OST-00-6759

1999 U.S.- Brazil Combination Service Case

Continental will offer a daily pattern of Houston-Sao Paulo service this year by operating nonstop service four days per week and one-stop service via Lima three days per week. Despite American's Brazil onslaught at Dallas/Fort Worth, Continental will be able to offer daily Houston-Sao Paulo service on an economically viable basis by combining Houston-Sao Paulo, Houston-Lima and Lima-Sao Paulo traffic flows on a single flight three days per week. Continental will provide more effective competition with American on the Texas-Lima routes (where American operates a daily B-767 between Dallas/Fort Worth and Lima against Continental's daily B-757 service between Houston and Lima), the Texas-Brazil routes (where American will operate 10 weekly Dallas/Fort Worth B-767 flights and Continental is proposing four weekly Houston-Sao Paulo DC-10 flights and three weekly HoustonLima-Sao Paulo B-757 flights) and on the Lima-Sao Paulo route (where Varig operates the only nonstop service and the only online connecting service is offered by American's allies, Lan Chile and Aerolineas Argentinas, and Continental is proposing three weekly nonstop B-757 flights). Allowing Continental to operate daily Houston-Sao Paulo flights, expand the traffic base for its daily Houston-Lima flights and offer an important new intra-South America nonstop flight between Lima and Sao Paulo will enhance Continental's ability to compete with American and its allies for U.S.-South America and intra-South America traffic significantly and provide important new benefits to the public.

American has prevented Continental from gaining access to Argentina despite Continental's plans since at least 1994 to serve Argentina and Continental's diligent and best efforts to secure such authority. Continental's access to Argentina is long overdue and the Department should use the opportunity before it to remedy the most significant deficit by far in U.S. -Argentina service and introduce vigorous competition for American and its allies in South America.

Counsel:  Crowell Moring, Bruce Keiner, 202.624.2615

Continental Airlines, Inc.

Counsel: Crowell Moring, Bruce Keiner, 202.624.2615

Continental Airlines, Inc.

By Order 99-12-27, the Department reestablished the procedural schedule for the 1999 U.S.-Brazil Combination Service Case, Docket OST-99-6284 (1999 Brazil Case). That order also directed Continental to submit evidence of its plans to use three of the seven weekly frequencies currently allocated to Continental for service in the Houston-Sao Paulo market before .they would become dormant under the terms of their award. Absent such evidence the Department stated that it would consider whether it is in the public interest to place those frequencies at issue in the 1999 Brazil Case. On January 7, 2000, Continental filed its response to the Department's order. In addition, on that same date Continental Airlines filed an application (Docket OST-2000-6759) for exemption authority to operate service on a Houston-Lima-Sao Paulo routing beginning June 15, 2000, an exemption from the dormancy conditions on three of its seven Houston-Sao Paulo frequencies until June 15, 2000, and an allocation of three weekly Peru-Brazil fifth-freedom frequencies so that Continental can offer local Lima-Sao Paulo service on its Houston-Lima-Sao Paulo flights. Because the Houston-Lima-Sao Paulo application is related to Continental's response in the 1999 Brazil Case, Continental requests that the Department shorten the period for filing answers to its application to January 13, 2000, the same date that answers to Continental's response in Docket OST-99-6284 are due. (Under the Department's regulations, answers to Continental's application in Docket OST-2000-6759 would normally be due January 24, 2000).

Acting under assigned authority under 14 CFR Part 385, we have decided to grant Continental's request to shorten the period for filing answers to its application in Docket OST-2000-6759. Given the interrelationship between Continental's application and the outstanding issues in the 1999 Brazil Case, and our desire to make a final decision as to the scope of the 1999 Brazil Case as soon as possible, we believe that the public interest is best served if interested parties file answers to Continental's January 7 application on the same date that answers are due to Continental's response in the 1999 Brazil Case.--Carriers may file separate answers to the application or may file a consolidated response to both pleadings. We believe that this modification to the normal procedural schedule balances the needs of all interested parties, while ensuring that the Department has a complete record on which to consider the matters at issue.

By:  Paul Gretch

1999 U.S.- Brazil Combination Service Case/ Application of Continental

Counsel:  American, Carl Nelson, 202.496.5647, carl_nelson@amrcorp.com

Counsel:  Shaw Pittman, Alexander Cohn, 202.663.8060

Counsel:  Newark, Samuel Crane, 609.577.7510

Counsel:  Kirkland Ellis, Jeffery Manley, 202.879.5161, jeffery_manley@kirkland.com

Continental Airlines, Inc.

Counsel:  American, Carl Nelson, 202.496.5647, carl_nelson@amrcorp.com

1999 U.S.- Brazil Combination Service Case

Finally, we agree with United that the one frequency formerly allocated to Continental for Newark-Rio de Janeiro service should remain in issue (p. 6). That frequency automatically reverted to the Department for reallocation, and Continental has no special claim to its return. For the foregoing reasons, the Department should, in the notice on scope of proceeding that it has proposed to issue on January 25, 2000, place all seven of Continental's Houston-Sao Paulo frequencies in issue for reallocation, together with the one frequency. Continental formerly held for Newark-Rio de Janeiro service.

Counsel:  American, Carl_Nelson, 202.496.5647, carl_nelson@amrcorp.com

Counsel:  Metro Atlanta Chamber of Commerce, Holly Beth Anderson, 404.586.8462

Counsel:  Zuckert Scoutt, Rachel Trinder, 202.298.8660

Continental Airlines, Inc.

Counsel:  Crowell Moring, Bruce Keiner, 202 624-2615

1999 U.S.- Brazil Combination Service Case/ Delta Air Lines, Inc. and Continental Airlines, Inc.

Because the Department has decided not to place all seven frequencies at issue, and since neither United nor American have any proposal to utilize less than seven frequencies, those carriers' calls to consolidate the Continental default frequencies into the 1999 Case amount to nothing more than an effort to complicate and delay the proceeding. These tactics should not surprise the Department in light of the fact that American and United are major incumbents and would both face significant new competition from Delta on the important New York-Sao Paulo route (where Delta is the only U.S.-Brazil competitor prevented from offering service). American's pendente lite use of the 1999 Case frequencies gives it all the more reason to delay final resolution of the case.  The delay tactics of American and United in the 1999 Case have now succeeded in forestalling competitive entry by Delta on the critical New York-Sao Paulo route by at least an entire traffic season. The Department should take immediate action to disentangle the unrelated Continental frequency matter from the core issue of the case, so that the 1999 Case can be promptly decided and Delta can begin to offer competitive New York-Brazil service early in the 1999 summer season.

Counsel:  Shaw Pittman, Robert Cohn, 202.663.8060

1999 U.S.- Brazil Combination Service Case/ Continental Arilines, Inc.

United seeks leave to file to address issues raised by Continental and Delta relating to their proposed bifurcation of the procedures for allocation of U.S. -Brazil frequencies. These carriers are in effect seeking reconsideration of the Department's Order 99-12-27. United's response will clarify its position and provide a more balanced record on which the Department can reach a decision.

Counsel:  Kirkland Ellis, Jeffery Manley, 202.879.5161, jeffery_manley@kirkland.com

1999 U.S.- Brazil Combination Service Case/ Continental Airlines, Inc.

As demonstrated above, Delta's surreply contains inaccuracies which Continental must be permitted to correct on the record for this proceeding. This being so, Continental's motion for leave to file this response should be granted. For the foregoing reasons, Continental urges the Department to grant its motion for leave to file this response, to award Continental permanently all four of its frequencies placed at issue in this proceeding without further proceedings or, failing that, to award Continental four frequencies pendente lite to operate the New York/Newark and Houston-Brazil services it has proposed.

Counsel:  Crowell Moring, Bruce Keiner, 202.624.2615, rbkeiner@cromor.com

Delta cannot and will not accept a split award that places it at a severe competitive disadvantage against the daily serve patterns of United and every other major Brazil competitor serving New York-Sao Paulo. Furthermore, it would be a public interest travesty to require Delta to relinquish any of its three Atlanta-Rio de Janeiro frequencies to fund any more flights by United, whose permanent frequency allocation outnumbers Delta's by four-to-one. Continental's reversal of its position and sudden call to consolidate the frequencies into consideration in the 1999 Case is merely an effort to forestall the all but inevitable conclusion that those frequencies be permanently allocated to Delta.

Counsel:  Shaw Pittman, Alexander Van der Bellen, 202.663.8060

1999 U.S.- Brazil Combination Service Case

Continental is proposing to combine nonstop Houston-Sao Paulo service operating four days per week with Houston-Sao Paulo service via Lima three days per week to offer a daily pattern of Houston-Sao Paulo service. Since this proposal will still offer significantly more public benefits than Delta's proposed Atlanta-Rio de Janeiro service, Continental moves to consolidate its January 7, 2000 application for Houston-Lima-Sao Paulo exemption authority and three weekly Peru-Brazil frequency allocations into the 1999 U.S.-Brazil Combination Service Case. Continental's application for the permanent reallocation of the three U.S.-Brazil frequencies necessary to operate the Houston-Sao Paulo services proposed here and its application for the permanent reallocation of one New York/Newark-Rio de Janeiro frequency are already pending in this proceeding. (See Order 2000-12-2 at 8) Continental plans on initiating its proposed Houston-Lima-Sao Paulo service on June 15, 2000, or within 90 days of the DOT order awarding it authority, whichever is later. Neither American nor United has applied for fewer than seven frequencies, although United has argued that the Department might award fewer than seven frequencies to carriers which have sought authority for daily service. The Department should require American and United to state the minimum number of frequencies they would accept for their proposed services prior to the submission of direct exhibits in this proceeding. This consolidation request is fully consistent with the Department's invitation to pursue these requests by filing a motion to consolidate them into the 1999 U.S.-Brazil Combination Service Case for comparative consideration (see Order 2000-2-12 at 8 n.9) and is conducive to the efficient dispatch of the Department's business. Accordingly, Continental's application in Docket OST-00-6759 should be consolidated into the 1999 U.S.-Brazil Combination Service Case.

Counsel:  Crowell Moring, Bruce Keiner, 202.624.2615

Pursuant to Order 2000-2-12, Delta Air Lines, Inc. hereby supplements its application in this proceeding to include a request for three additional Atlanta-Brazil frequencies. Delta intends to use these frequencies to provide nonstop Atlanta-Rio de Janeiro service, using 195 seat B-767-300ER aircraft. Delta will implement service within 120 days of receipt of final governmental approval.

Counsel:  Shaw Pittman, Alexander Van der Bellen, 202.63.8060

1999 U.S.-Brazil Combination Service Case / Continental Airlines, Inc.

In its motion, Continental urged the Department to "require American and United to state the minimum number of frequencies they would accept for their proposed services prior to the submission of direct exhibits in this proceeding." Motion Of Continental Airlines, Inc. To Consolidate, February 11, 2000, at 2 n.4. The Houston Parties strongly support, and wish to underscore the importance of, Continental's request that American and United provide this basic and essential information. Once American and United have clarified their intentions, all parties to this proceeding will be better able to focus their individual presentations in response. This in turn will facilitate and expedite the Department's task in adjudicating this proceeding by focusing the issues and alternatives before the Department. The Houston Parties do not believe that the Department need extend the March 2, 2000 deadline for filing direct exhibits in this case, as long as the Department directs American and United to clarify their respective intentions immediately.

Counsel:  Houston and Zuckert Scoutt, Rachel Trinder, 202-298-8660

1999 U.S.- Brazil Combination Service Case / Continental Airlines, Inc.

Continental is the only applicant seeking a single U.S.-Brazil frequency, and there is no reason to delay the award of a single frequency to Continental pending allocation of the ten contested Brazil frequencies. The Department decided to continue including Continental's one New York/Newark-Rio de Janeiro frequency in the 1999 U.S.-Brazil-Combination Service Case because "other eligible carriers ... may have plans to use this frequency." (Order 2000-2-12 at 7) Although other carriers have had abundant opportunities to reveal any plans they might have to use this frequency, no applicant other than Continental has made any proposal which would require the use of this frequency. Exhibits and briefs submitted by all applicants in the 1999 U.S.-Brazil Combination Service Case confirm that each of the remaining proposals requires at least three frequencies: Continental seeks three frequencies at Houston, American seeks seven frequencies at JFK, Delta seeks three frequencies at Atlanta and seven frequencies at JFK, and United seeks seven frequencies at Los Angeles. No combination of these proposals requires 11 frequencies.

Counsel:  Crowell Moring, Bruce Keiner, 202.624.2500, rbkeiner@cromor.com 

1999 U.S.- Brazil Combination Service Case; Application of Continental Airlines

Counsel:  Shaw Pittman, Alexander Van der Bellen, 202.63.8060

1999 U.S.- Brazil Combination Service Case / Continental Airlines, Inc.

Counsel:  American, Carl Nelson, 202.496.5647, carl_nelson@amrcorp.com

Continental seeks immediate reallocation of a single U.S.-Brazil frequency which it now holds on a pendent lite basis to operate an additional frequency between New York/Newark and Rio de Janeiro. Continental previously allowed this frequency to become dormant and failed to operate the daily EWR-GIG service it proposed in winning the allocation. In much the same way, Continental defaulted on its Houston-Sao Paulo service, operating only four weekly flights rather than the daily service it proposed in the route case and allowing three additional frequencies to become dormant. Continental is now engaged upon a campaign to regain these four dormant U.S.-Brazil frequencies. To do so, Continental and its civic allies are offering revisionist history of Continental's actions with respect to its U.S.-South America route authority. Thus, Continental refers to its "boldness and commitment" in developing U.S.-South America service with the help of DOT route awards. However, if one looks behind the version of events Continental now espouses, it is obvious that Continental's "boldness" is applied principally to making aggressive route proposals in DOT proceedings in order to win authority, which it is "committed" to abandon as soon as it has secured the award. Indeed, "brazen" might be a better word than "bold" to describe Continental's actions.

Counsel:  United and Wilmer Cutler, Jeffrey Manley, 202-663-6670, jmanley@wilmer.com 

1999 U.S.- Brazil Combination Service Case/Continental Airlines

Counsel:  Crowell Moring, Bruce Keiner, 202.624.2500, rbkeiner@cromor.com 

1999 U.S.-Brazil Combination Service Case / Continental Airlines, Inc.

United offers the foregoing in order to put Continental's repeated claims as to its commitment to U.S.-South America services into proper perspective. In fact, the actual record demonstrates the very gamesmanship by Continental to which United referred in its April 27, 2000 answer. Continental's latest submission provides additional evidence of that carrier's willingness to distort the past in its efforts to continue to secure awards in U.S.-South America route proceedings.

With respect to the U.S.-Brazil market, which is the focus of this proceeding, all designated carriers faced a challenge in dealing with the problems created by Brazil's economic crisis in 1998-99. Continental responded to that crisis by defaulting on the service proposals on which the Department relied in awarding new route authority to Continental. Only United responded by continuing to operate all of the U.S.-Brazil frequencies allocated to it. United's actions, together with its proposal to bring daily U.S. carrier service to the large Los Angeles-Sao Paulo market, demonstrate that United is the carrier on which the Department can best depend to offer and sustain public benefits in the U.S.-Brazil market.

Counsel:  United and Wilmer Cutler, Jeffrey Manley, 202-663-6670

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